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Take the first, simple step to financial wellbeing

South Africans are all too accustomed to hearing that they don’t save enough when compared to national savings rates in other countries. But with rising living costs, inflation and debt servicing rates, just surviving from payday to payday can often feel like an accomplishment.

So it’s refreshing to be reminded of initiatives that are specifically designed to help ordinary consumers do great things with whatever money they have, balancing immediate needs with longer-term goals.

One such initiative is the Tax-Free Savings Account (TFSA). Introduced by government in 2015, it was aimed at encouraging a culture of saving among South African consumers, many of whom are in the habit of exhausting their income on spending instead of setting aside fixed amounts to save each month.

Since their introduction these savings accounts, which have built-in tax concessions that allow you to get the most out of your money, have understandably struck a chord with South Africans. The take-up rate has been significant and to date more than R5-billion has been invested in TFSAs.

Despite this, the majority of South Africans remain largely unaware of the benefits of this tax-efficient savings and investment vehicle. While awareness of TFSAs has increased by 11% in the past year, two out of three working metropolitan South Africans are still unaware of them, according to the 2017 Old Mutual Savings & Investment Monitor. Of the respondents who are aware of them, 11% have invested in a Tax-Free Savings Account and 46% were taking action by researching and investigating the benefits.

The benefits include the opportunity to save up to R33 000 a year, completely tax-free, up to a lifetime limit of R500 000. This means you pay no tax on the growth of your savings, including dividends, capital gains or interest.

TFSAs are also an ideal vehicle for topping up your discretionary retirement savings and supplementing retirement capital. As with most savings funds, they should ideally be allowed to mature over time to optimise the real benefit of compounding growth. However, withdrawals are allowed at any time, for whatever reason, with no restrictions or penalties.

They also offer an efficient way to build discretionary wealth, or save toward specific goals such as tertiary education for your children or a sabbatical, depending on your needs and objectives.

At Old Mutual nearly a third of TFSA sales took place online, indicating that this saving option is attracting more digitally savvy South Africans. A large percentage of Old Mutual’s newly signed-up TFSAs are recurring savings, which illustrates a commitment to longer-term, ongoing financial planning and savings. This is an encouraging sign, suggesting that South Africans are not only starting to understand the importance of saving and staying out of debt, but are also starting to maximise the available tax concessions.

When it comes to achieving your goals, professional expertise and advice matter, especially in volatile times. Work with your financial adviser to ensure that your dream has a plan behind it.